Have Publishers Shot Themselves in the Foot With Costly Ebooks?

What if the major book publishers inadvertently shot themselves in the collective foot by raising ebook prices to protect their paper book business? And in the process, hurt their 2015 profitability compared to where things stood before the ebook price hikes?

Managing price elasticity over time and by product is one of the most difficult jobs of any marketer. It’s one thing if we are talking about what to price Tide detergent for this week at Walmart and Rite Aid and quite another when talking about the same product delivered in multiple formats, which is the case for books.

Before ebooks came on the scene, publishers were practicing a smart strategy based on the core discipline of customer segmentation. No matter what the product or service, customers break into three main buckets: avids (early adopters), mainstream, and laggards. This segmentation system is most relevant in technology adoption, as wonderfully detailed in Geoffrey Moore’s important work done in the 1990s. His books Crossing the Chasm and Inside the Tornado are two of the most important marketing books we have to help guide our segmentation strategies.

The age-old publishing strategy, which was under control before the advent of ebooks, was a smart one where hardcovers, trade paperbacks, and mass market paperbacks (where warranted) were timed around customer segments for release. The avids need to be the first on the block to own whatever the passionate category may be for them, so for book avids, they will pay more for a hardcover, which is their only option at product launch using the time-tested strategy. Then the much larger mainstream segment comes onboard a year or so later with the trade paperback release, paying a price that seems appropriate to them. Lastly, along stumble the less important laggards, often driven by tie-in movies that encourage them to pick up the mass market special edition. Many laggards do not pay for their books at all but read them as pass-alongs. What they read (and when they read it) is far less important to them than for the other two segments.

Moore’s term “crossing the chasm” referred to the difficulty in moving from the early adopters to the mainstream and then laggards. (You can’t get to the laggards if you don’t cross to the mainstream.) Early adopters have different needs than the mainstream. Different personality profiles. They are not price sensitive so will pay more. They enjoy experimenting, fixing, and improving products. In technology, they are often beta testers. They have an emotional need to influence others with their expertise. “Oh, you simply must read NormalFamily by Don Trowden,” they might say. Or “I would never read Harper Lee’s new novel as it wasn’t meant to be published.” Early adopters are highly opinionated and, arguably, more intelligent than the rest of us!

The mainstream is influenced by these early adopters but they are far more practical. They actively do not want to be the first to try a new product. They rely on reviews. They are more easily influenced than they might admit. And they are price sensitive. Reading that new novel as a hardcover is simply not an option as they won’t pay $28 for a book. They can wait. And paying $12.95-$14.95 for an ebook seems too high.

So the big question is how many people wanted to read Book XYZ but put if off due to price hesitation and never actually “got there”? Maybe they watched Netflix instead. Excellent retailers conduct exit interviews to find out why someone went into the store to buy a product and left without it. I don’t believe publishers have this data. I’m not sure Barnes & Noble does either. I think Amazon might.

The publishing industry was managing customer adoption cycles well before ebooks came on the scene. As a new digital download item added to the various print options, there was and is strong price resistance less determined by the paper editions and more by the overall competition among all digital entertainment content. Life, and business, take place in context. The old adage applies here: “People buy expectations.” These expectations exist around what the product will do and also what it should cost. Imagine coming upon that Tide in the supermarket and being asked to pay $18? Or seeing it for $5 on sale at Walmart and $12 in the regional supermarket chain next door? This creates buyer mistrust. Delays purchasing. Bad.

We don’t yet have publisher year-end financials but my hunch is the minor unit gains realized in print last year will not offset the significant losses in ebook sales, which deliver better margins. Many cheer about this increase in print, sighing in relief, yet do they understand the impact on the bottom line of those lost ebook sales? And it seems likely those gains were achieved through sales of four or five titles. What about all the other midlist authors? Debut novelists? Who were those former ebook buyers? Were they more likely to be laggards? Mainstream book buyers? One-time purchasers who gave it a try when the ebook was in front of them at the right price at the right moment the year before? Was Amazon correct in pushing for $9.95 as the ideal starting price for an ebook? Did they create new customers for publishers that the publishers in turn have now pushed away?

I predict publisher profitability will be hurt as a result of mismanagement of this new product mix that now includes ebooks. Lost opportunity. Is that opportunity shifting outside the publishing industry to self-publishing and others, where the prices seem appropriate to the less engaged mainstream shoppers? What if this happens? What do you think the industry response will be?

ETCaleb MasonAuthor's page
Caleb Mason is the founder and publisher of Publerati, a hybrid fiction publisher and literary agency, which employs a unique socially-responsible business model aimed at using ebooks to help spread literacy via Worldreader. Caleb also writes fiction under the pen name Don Trowden (as in downtrodden), author site here.Earlier in his career, after working in bookstores, and at Little, Brown, and then co-founding Salem House publishers, Caleb left publishing for several other industries disrupted by change. These include the photo industry, packaged goods CD-ROM software industry, and GPS industry. Having experienced many shifts, Mason has formed a unique perspective on the digital changes ongoing in the book industry. He shares that perspective in his blog "Outsights on Publishing."

To me this is not a question anymore. As a reader I feel insulted by the current price strategy and my response was accordingly. I expect that when the publishing industry realizes what they have done they will backtrack and return to a more sensible strategy.

agclaymore

I now read almost exclusively on Kindle/Kobo but pricing has cut me off from authors that I used to read religiously. I think the pricing strategy isn’t having any real impact with regards to protecting print sales. Folks who want to read on a device will still do so, they just wont be reading what the large conglomerates want them to pay $20 for.
I think the eSales still happen, and in greater numbers, but they’re shifting to a new corner of the market.

Thanks for your comment Christian. I didn’t specifically pose the larger question in my article but . . . what if it’s too late? What if more readers have already shifted to the new providers of books: Amazon and authors themselves? Who owns the photo industry now? Kodak or Facebook, Apple, and Samsung? Who owns the mapping business now? Rand McNally, Garmin or Apple, Google, and Samsung? So on and so forth. The tendency of established interests is always to protect those interests but while this is happening, the revolutionary new realities are moving ahead by unencumbered outsiders not being closely monitored as a form of denial and survival. Time till tell.

Christian Zierleyn

I think it’s not too late for damage control. They just need to lower prices for ebooks to a level that people find acceptable and then people will come back to them if the books they publish are worth it. I don’t care if a book is by a big publisher or self-published by an author. I just want to read the books I find interesting. On the other hand I also agree with your argument that protecting established interests never worked out very well in recent history and there probably is no way back to the market share big publishers were used to.

iliad1954

Historically, book formats have had as much to do with different distribution channels as with differing price points. That is certainly the case with e-books. It seems likely that publishers are interested in maintaining the viability of diverse distribution channels and that influences the pricing. Historically, early adopters and laggards have shopped in different places. That difference is likely still an important difference.

Great comment, thanks. I realized while writing this post that a key problem for publishers is that early adopters, wanting to have the product first, will buy it online as an ebook to start forming opinions immediately. No waiting required. Convenient. So there goes your hardcover sales at the bookstore. But I have little faith in the future of standalone bookstores so that makes me different from many. I do think it makes sense in the future for the avids to buy the ebook immediately (for word books, not picture books) and then buy a high-quality paper edition if the work is truly exceptionally important to them. But most of the print word books on my shelves are classics and then found books (Goodwill, yard sales, etc.) More than half my print books are art books bought years ago. Tough for new writers to compete against those works for print shelf space at home, at least for me. Yet I am always hauling so many books when I move and the vinyl records are long gone. Thanks, again.

agclaymore

I don’t know, Caleb. If a publisher expects me to pay $20 or more for an ebook, they’d better sign up for matchbook. Let me buy the hardcover and throw in the file for free.
I’m an early adopter – of eReaders. It’s the format I read most books in and I’m not paying their prices anymore. There are more than a few authors leaving the big houses and engaging editors and cover designers on their own. They charge much better prices.
If the large houses want to survive, they need to realise that a $20 ebook rarely equals a paper sale but it does equal an angry customer.

Catherine M. Wilson

If publishers were more interested in the long game, they would realize that once a book has been out for six months or a year, the ebook will be competing with used copies, hardcover or paperback, that often sell for less than $10 including shipping. I prefer adding ebooks to my library instead of cluttering up my house worse than it is, but I will buy the used book and lend it, give it, or toss it when I’m done rather than pay more for an ebook. And of course the publisher and the author get $0 for a used copy. If there were an exit poll for ebooks, I would say, I came here to buy your ebook but I can get a used copy much cheaper. Bye!

Kindle Unlimited and ebook subscription services such as Scribd are having an impact on ebook sales. Although in saying that Oyster has recently closed suggesting that offering customers the ability to read an unlimited amount of ebooks is clearly not a viable business model either.

Kati

Oyster closed because Google hired the founders. My guess is Google plans to integrate an Oyster subscription model into their system in the next year.

That makes a lot of sense. Google should become a big player in publishing, same as Facebook and Apple did in photo and Google and Samsung and Apple did in mapping and location-based services. And Amazon did in books and entertainment delivery.

Google were definitely head-hunting some of Oyster’s developers after they started going south but I don’t think that was the reason Oyster closed. I would say it had a lot to do with major publishers being reluctant to have their best-selling books available on ebook subscription services. Google Books seems to lagging behind and unless they can come up with something better than Kindle Unlimited I can see them going the same way as Oyster.

Kati

Google hired the founders and paid back Oysters investors. Sounds like a acqui-hire to me. I agree though that Oysters was struggling but it was because the deal they struck with publishers wasn’t sustainable because they underestimated how many books avid readers could/would consume in a month and lost money on any reader who read more than 2 books per month. Google books is lagging but it isn’t their main focus so they have flexibility and money to test out models with less risk.

Nicole Scoble

This is pure conjecture but I’m inclined to agree with Kati; Oyster had just introduced an online store for new books from publishers (with agency pricing) so they were obviously no longer expecting or pressuring publishers to put newer titles onto the unlimited tier. Also, Scribd still seems to be going strong, and the same publishers are still on board with them that were on board with Oyster. If they fundamentally disagreed with the system then I think Scribd would be over by now as well.

Kati

Platforms like iFlipd are allowing users to rent a book starting at $2/week and are testing this model with the publishing world. Particularly in the textbook market, this allows users to access materials at a lower cost and finance their books over time. The same model can be applied to traditional books as well. The bigger problem is the publishers being unwilling and inflexible to try new revenue models. They are stuck in their ways and it is hurting their business by not being progressive.

The author is on the right track with this article but it helps to do your research before you write. For example, Amazon very much did not “push for $9.95 as the ideal STARTING price for an ebook.” First the amount that Amazon pushes is $9.99 and they say it should be the TOP price, not the starting price. And of bloody course they are right. There are other issues in the article but that is the easiest to point out.

By the way those ebook readers haven’t stopped reading ebooks. The sales have simply gone to those of us who publish independently and don’t charge insane prices for ebooks. Thanks, readers, your purchases are much appreciated.

Most of the time prices are highest when something is initially offered, so starting price normally would be synonymous with top price. Given that fact, your only remaining quibble is over a 4 cent difference. That’s a discrepancy, sure, but not really one that warrants casting aspersions about the author having done his research.

This doesn’t bode well for year-end per my original post here. From AAP today, excerpt: “For the nine month period, the 7.4% drop in the children’s/young adult segment was caused by a 44.8% decline in e-book sales combined with a 14.5% drop in hardcover sales. Sales of paperbacks were up 8.9%, and board book sales rose 13.6%.

Total sales for all 1,205 publishers who reported figures to the AAP were down 0.7% in September and sales in the year to date were off 2.0%.

Exitus Caeli

I put off buying nearly a dozen titles on Amazon and gave up on trying an equal number of new authors precisely because of the ridiculous prices put on their new releases. It’s inconceivable that I’d buy a book from an unknown author for reading on Kindle when it comes in under 300 pages and costs $28 (as I just recently noticed on one I was interested in).

I have no idea what they are thinking. What is happening is I am trying lots of entry level authors now who are discounting or giving away works. I’ll wade through a few poor reads that eventually lead me to some good ones rather than invest in a three of four book series by an author charging $20 per title.

Martha Smith

I agree with everything you say. I read many many books and I prefer buying them as e-books. Sometimes I cannot resist preordering the e-book at top dollar, and I figure I’m paying a fair price for instant gratification. But far more often, I notice that the ebook costs more than the paperback (and sometimes the hardback!), I get disgusted and I request the book from the library instead. If the book will be inconvenient and uncomfortable to read, I might as well add the inconvenience of waiting for a library copy. Besides, it’s not like I don’t have plenty of other things to read / watch / listen to.

Avery Goodman

As an author (“The Synod” http://amzn.to/1Tzs7Sb), I have mixed feelings about the conclusions of the writer of this article.

On the one hand, I can see the point of the publishers. Even though it may seem like digital content is free, or much cheaper to produce than paper, it isn’t entirely true. The cost of printing, transportation etc. is dwarfed by the effort and cost that goes into writing, editing, publicizing, and promoting a book.

Ebooks should be somewhat cheaper than print books, but they should not necessarily all have to be in the 99 cents to $3.99 range, as some people seem to think. On the other hand, it doesn’t matter what “should” be. It matters what is. It may well be that the digital world has devalued most books, and that is something that the publishing industry must live with.

kurt

The digital world hasn’t devalued most books. What it has devalued is good writing. This is exactly the same phenomena as occurred in graphic design – digital tools enabled anyone to imagine they could produce a good design. Now anyone that wants to take the time to produce an e-book or spend the money to self-publish imagines they can write well. In the end, good literature will be good literature whether in print or electronic, but bad writing will still be bad writing. Digital publishing has simply lowered the bar.

Bill Green

I had to dive into this conversation because I have a prime example of publishers greed to mention here. I recently purchase a book by Peter F. Hamilton, published by Del-Ray, called The Abyss Beyond Dreams: A Novel of the Commonwealth, a Kindle ebook. It’s a 640 page novel and it sells for $10.99C on Amazon. That seems like a fair price to me.
The sequel to this novel is to be released in September of this year, from the same publisher, 720 pages – and the price? get this $32.99!!
I just can’t get over this level of greed. I just doesn’t make sense. In an industry that’s based in printing, and inventories, e-books are all profit, and publishers are simply shooting themselves in the foot.